"The markets think they have Yellen's number," that she
will never allow markets to go down, Warsh warns "that is a very
dangerous development."We must stop QE, Warsh chides, as the inflation goals are close
enough to a comfort zone and arguing for QE because of lowflation is
poor thinking "because our gauges are not even that good."Dollar strength is The Fed's doing, he adds, since they have been telling everyone to do what we have been doing... and adds "The Fed talking about the dollar tells me they are more concerned about the dollar's impact on earnings."What worries Warsh the most, however, is "The Fed's policies changing based on what happens on the ticker... The Fed should be thinking 3 to 4 years ahead."Finally, he crushes the memes of all the malinvestment deniers...
"people in the real economy who dont have big balance sheets have been
suffering from wage pressures and stagnation...""We tried negative real rates in the mid 70s and the early 2000s and both ended badly."

The largest changes taking place in student borrowing are happening
among graduate students, Delisle says, who now owe $57,600 on average.

"When you combine that with unlimited borrowing at the grad
level and then only make people pay for 10 years based on a small share of
their income, it becomes clear, somewhat obvious to people who are borrowing to
pay for school, they are really just borrowing money that will be forgiven," Delisle says.

Looking
at the debt levels of law school students, for example, there was no
significant change in the average amount of debt students graduated with
between 2004 ($88,634) and 2008 ($90,052). But by 2012, the average
spiked to $140,616, and the average monthly payment shot up from $760 in
2008 to $1,187 in 2012.

One former Behavior Detection Officer manager, who asked not to be
identified, said that SPOT indicators are used by law enforcement to
justify pulling aside anyone officers find suspicious, rather than
acting as an actual checklist for specific indicators. “The SPOT sheet
was designed in such a way that virtually every passenger will exhibit
multiple ‘behaviors’ that can be assigned a SPOT sheet value,” the
former manager said.

The signs of deception and fear “are ridiculous,” the source
continued. “These are just ‘catch all’ behaviors to justify BDO
interaction with a passenger. A license to harass.”

The observations of a TSA screener or a Behavior Detection Officer
shouldn’t be the basis for referring someone to law enforcement. “The
program is flawed and unnecessarily delays and harasses travelers.
Taxpayer dollars would be better spent funding real police at TSA
checkpoints,” the former manager said.

A second former Behavior Detection Officer manager, who also asked not to be identified, told The Intercept
that the program suffers from lack of science and simple inconsistency,
with every airport training its officers differently. “The SPOT program
is bullshit,” the manager told The Intercept. “Complete bullshit.”

When "very serious people" (even if it is those who once ran now
defunct Bear Steanrs) announce it, with a 6 year delay, they make the Financial Times.

On the other hand, when Zero Hedge said precisely this 6 years ago,
it was cast as a tin-foil clad group of conspirators who see the worst
in every situation.

What is "it"? This:

The long-term consequences of global QE are likely to
permanently impair living standards for generations to come while
creating a false illusion of reviving prosperity.

In this case, it was said this week by
Guggenheim's Chairman of Investments and Global Chief Investment
Officer, Scott Minerd. We are happy that increasingly more "serious
people" come to the same conclusion which we posited first a 6 years
ago.

The Employee Benefit Research Institute
estimates the median amount in U.S. 401(k) accounts is a paltry $18,433
and almost 40 percent of workers have less than $10,000 in those
instruments.

"In America, when we had disability and defined
benefit plans, you actually had an equality of retirement period. Now
the rich can retire and workers have to work until they die," Teresa
Ghilarducci, a labor economist at the New School for Social Research,
told CNBC.

The mainstream press may call it a black swan, but some of us predicted the House of Saud succumbing to a difficult transition with the passing of the King. If Saudi Arabia collapses, goodbye cheap oil, accompanied by many geopolitical fissures in the middle east.

In any case, paper assets are collapsing while hard assets are climbing as this goes to print in overnight trading. Time for the Fed and Plunge Protection Team to shift into overdrive.

The problem, of course, is market manipulation (or "interventionism") works--until it stops working. Rigged markets never end well.

Monday, March 23, 2015

Awesome. First, the US funds Assad's rebels, who later turn out to be ISIS, a radical Islamic group so brutal that Iran fights them and al-Qaeda rebels denounce them. Now the US is "inadvertently" providing al-Qaeda terrorists with $500 million of arms in Yemen.

Sunday, March 22, 2015

So essentially this is just the old “if you can’t beat ‘em, join ‘em”
strategy disguised as an attempt to bring the AIIB into the fold of
US-dominated multinational institutions.

But make no mistake, this is at best an example of Washington cutting
its losses and at worst an outright surrender, as no one should pretend
that the AIIB, which is starting with $50 billion in capital, will
remain subservient to the AD...

Are readers starting to see a recurring meme here? That USDollar hegemony is on its way out? Do you understand what that will do to your standard of living long-term? It's not merely a passing of the torch from the US to Chinese financial and diplomatic dominance.

The US will be part of a multi-polar financial axis of power--America won't fall off the geopolitical landscape. But the reserve currency status of the petrodollar will result in loss of purchasing power and catalyze social turmoil. Think Americana spring.

The Obama administration and Congress are scrambling for damage control. They know America's unlimited credit card bill is coming to an end. They also know our trading partners and closest allies know it.

Saturday, March 21, 2015

Social Security’s hidden debt is just a small part of the story. Two weeks ago, the Congressional Budget Office released its annual long-term budget outlook.
The good news: This year’s deficit — about 3 percent of gross domestic
product — is the smallest since 2007 and way down from the peak of
almost 10 percent in 2009. The bad: Without action, the deficit will
grow “notably larger” starting in about four years, a result of our
aging population, rising health costs and the new subsidies for health
insurance.

Even
worse, the budget office raised what’s called the alternative fiscal
scenario, the most realistic projection of fiscal outcomes absent major
policy changes. Based on these estimates, I calculate that the “fiscal
gap” — a yardstick of total government indebtedness that I’ve worked on
with the economists Alan J. Auerbach and Jagadeesh Gokhale — was $210 trillion last year, up from $205 trillion the previous year. Thus $5 trillion was the true deficit.

The
fiscal gap — the difference between our government’s projected
financial obligations and the present value of all projected future tax
and other receipts — is, effectively, our nation’s credit card bill.
Eliminating it, would require an immediate, permanent 59 percent
increase in federal tax revenue. An immediate, permanent 38 percent cut
in federal spending would also suffice. The longer we wait, the worse
the pain. If, for example, we do nothing for 20 years, the requisite
federal tax increase would be 70 percent, or the requisite spending cut,
43 percent.

So
these things (geopolitical dangers) are real but there’s a much bigger
issue at stake and that is this whole post-war international economic
order having been based on the U.S. dollar and U.S. policies that were
predicated on the assumption that they served everybody's interests.
What China and Russia are now saying is, 'They don’t serve our interests
anymore.'

It’s
really apt that the British decided to join the new emerging market
BRIC Bank — the new institution that China and Russia are creating to
act as a substitute or a new version of a combined World Bank/IMF
structure. It’s the infrastructure bank for emerging markets. This is
another way that they (Russia and China) challenge the supremacy of the
United States.

And
it was fascinating to see the White House slap-down the British quite
forcefully — their closest ally — and say, ‘You shouldn’t have done
that.’ This has raised all kinds of questions because the British view
is: 'If this institution is going to be funneling big amounts of money
into emerging market infrastructure, which clearly needs to be built,
then are we smarter to be on the inside where we can keep an eye on
what’s going on, or on the outside where we don’t know?'

The
American view is, ‘We don’t condone any participation.’ And I think
the rest of the world, including America’s allies, are going to say,
‘Well, actually this is better than war, right? It’s better to work
with them in the context of building the world economy, than to stay out
of that dialogue and instead intensify the business of sending troops
to borders.'

This
is the situation that markets need to get a grip on and I think that
leads to all kinds of questions about things that matter to the
listeners of your broadcast and that is markets like gold. For
instance, China and Russia have been big accumulators of gold in
anticipation of a day when they step forward and say, ‘Our currency is
more backed by real gold than the American dollar,’ which is another
piece of the same puzzle. So I think that’ the big picture here.”

“This gap between the 1 percent and the rest of America, and between the
US and the rest of the world, cannot and will not persist,” says the
investor. “Historically, these kinds of gaps get closed in one of three
ways: by revolution, higher taxes or wars. None are on my bucket list.”

Wednesday, March 11, 2015

Hugo Chavez is rolling in his grave. After being one of the first to repatriate his country's sovereign gold, Venezuela is now willing to part with the gold at fire-sale prices. The price suppression by the bullion banks is working, as it is inducing bankrupt countries to keep their lights on a little while longer--even if it means selling the one asset that has intrinsic value.http://www.zerohedge.com/news/2015-03-11/venezuela-begins-liquidating-its-gold

I experienced the boom/bust cycles of other commodities and its collateral effects. With DRAM semiconductors, during the so-called allocation phase when capacity was constrained, prices of memory chips went through the roof. Shortages were rampant. Of course, this invited competitors to increase supply capacity, which later produced plummeting prices. In other words, supply more than caught up with demand within a few months.

Efficiencies during the boom phase yielded faster throughput and fewer defects, resulting in higher production. The problem was as more fabs came on line, the scales tipped the other way, as supply would exceed demand, which caused the bust in prices and eventually production shutdowns and fab closures. These volatile conditions caused huge dislocations in the industry, and associated side effects such as unemployment, currency collapses, company write-downs, bankruptcies, etc.

The same is true today in the precious metals industry, although plummeting prices of the underlying metals has nothing to do with market supply and demand, but everything to do with central bank manipulation. Bullion banks work as agents for said western central banks in their surreptitious price suppression schemes, manipulating prices far below their production costs. Eventually, mining companies dissolve into bankruptcy, as they attach dollars with every shipment. This, in turn, results in closure of mines.

However, the impact is far greater and longer in duration relative to other industries--like semiconductors, for example. Semiconductor fabrication facilities can be built relatively quickly. With mines, once shut down, it could take many years to re-start them after they've been moth-balled. Supply won't come on stream overnight.

And with market prices far below production costs, the most chilling effects rest on the explorers, as the incentives to find new mineral fields are removed. Exploration is a dicey proposition with high failure rates. Unlike manufacturing industries, the precious metals exploration industry is fraught with risks. This will ultimately drive precious metals prices much higher in the future.

Another point to glean from the current toxic environment of investing in mining shares is becoming self-evident. With the prices of the underlying metals low, the short-term prognosis for the mining industry is precarious--even if the future for the precious metals themselves is still bullish. Hence, a balanced portfolio should include physical gold and silver. That's the fear trade, as precious metals still provide the best hedge for financial catastrophe and/or currency debasement.

The greed trade is investing in mining companies, as rising precious metals pricing results in rising shares of mining companies at much higher orders of magnitude. In other words, when gold and silver prices rise, the mining shares rise even higher. But the reverse is also true--in the other direction. Since the peak in prices in 2011, mining shares have plummeted even more, with some even going out of business.

Long-term, some mining companies will flourish, perhaps appreciating over 10-fold. But that's only if they can survive the current severe downturn. The herd will be thinned. When investing in any equities, the investor takes on company risk, industry risk, financial risk, management risk, governance risk, jurisdiction risk, political risk, and with mining shares, many other risks specific to the extraction industries--the suppression of prices being the most obvious.

Hence, a prudent speculator (because let's face it--investing is calculated speculation) should include physical precious metals in their portfolio. For high beta (high risk/high reward) investors, a small allocation of mining shares may be appropriate.

The next nuanced point is government and central bank intervention in industries certainly causes unintended consequences, most of them negative. Markets are distorted and price discovery is destroyed, resulting in industry dislocations. Livelihoods are destroyed. But the high priests of central planning insist they know what they are doing, despite evidence to the contrary.http://www.zerohedge.com/news/2015-03-10/allied-nevada-gold-files-bankruptcy-protection

And since there is no such thing as a free lunch, it will be the US
taxpayer who will as usual end up footing the bill. Expect college fees
to go vertical once deans and administrators understand that they can
charge anything and the taxpayer will end up footing the bill.

I agree with the author that the Fed will continue QE. I disagree that the process will have benign effects. The Fed's balance sheet will be bloated beyond comprehension and will further impair our nation's insolvency.

Though the number of arrests made in India has
increased, those that get caught are usually only the "carriers" who
transport gold for as little as 10,000 rupees. The people behind the
smuggling are rarely identified.

In
an effort to change that, Mumbai customs offers a reward of up to
50,000 rupees per kg of bullion seized for informers in gold smuggling
cases. Cocaine and heroin informers get only up to 40,000 rupees and
20,000 rupees respectively.

According to Maguire, the manipulation of the paper gold market is coming to an end soon, as the physical market emerges. I remain a skeptic, because central banks and their bullion bank agents will whipsaw speculators as long as they continue the illusion of existing physical inventory. We shall see.

ShareThis

Search This Blog

Welcome

Some of our best ideas come to us during the most inopportune times: waking up, in the shower, driving along a country road...my blog is an attempt to capture these epiphanies, whether whimsical or serious in nature. These blogs are heavily weighted toward financial matters and/or innovation (e.g. disruptive technology)--normally boring subject matter. But when sprinkled in with meanderings about human nature, I hope to shed some light on oft-misunderstood topics--without being dogmatic. Enjoy and perhaps learn a thing or two from my moments of clarity.

Disclaimer: The content on this blog is provided as general information only and is not investment advice. Content should not be construed as a recommendation to buy or sell any specific security or financial product, or to participate in any particular investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Any action that you take as a result of information or analysis on this site is ultimately your responsibility. Any opinions, news, research, analyses, prices, or other information contained on this blog is provided as general market commentary, and does not constitute investment advice. The author will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your professional investment adviser before making any investment decisions. Perform your own due diligence.